Sinochem Said to Struggle for Support for Potash Bid

Oct. 7 (Bloomberg) -- Sinochem Group, China’s largest
fertilizer trader, may struggle to get state financial backing
for a takeover of Potash Corp. of Saskatchewan Inc., making a
deal unlikely, said two people with knowledge of the matter.

China’s government has indicated it would prefer Sinochem
to finance any takeover without credit from state banks, which
may put the transaction beyond the company’s reach, the people
said, asking not to be identified because of confidentiality.
Sinochem may still consider seeking a minority stake, a deal
that would be easier to fund, one person said.

Potash Corp., the world’s largest producer of its namesake
crop nutrient, in August rejected Melbourne-based BHP Billiton
Ltd.’s $40 billion offer as too low and said it’s seeking other
bids. Without government backing, state-owned banks are unlikely
to provide takeover financing to Sinochem, the people said.

“If you give a super-high price, Canada will allow it to
be sold, but does it make sense for China to buy?” said He Wei,
a Beijing-based analyst at BOCOM International Holding Co. “If
you look at history, China hasn’t made any successful deal of
that size so far.”

Majority Stake

Potash Corp. fell 48 cents, or 0.3 percent, to $140.90 at
4:15 p.m. in New York Stock Exchange composite trading. The
shares have risen 30 percent this year. BHP is offering $130 a
share for Potash Corp.

BHP fell 15 pence to 2,122.5 pence in London trading.

State-owned Sinochem had explored taking a majority stake
in Saskatoon, Saskatchewan-based Potash Corp. and was looking to
involve Canadian pension funds or other Canadian investors to
boost support for a deal, people familiar with the plan said
last month. Authorities had allowed Sinochem to begin piecing
together a bid, the people said at the time.

A call to Li Qiang, a spokesman for Sinochem, went
unanswered. Chinese businesses are closed for the weeklong
National Day holiday. Potash Corp. spokesman Bill Johnson didn’t
respond to a call outside of business hours.

Key Company

Sinochem Group, parent of Sinochem Corp., is listed as a
key state-owned company under the nation’s State-owned Assets
Supervision and Administration Commission of the State Council.
The group, incorporated in 1950, posted a record gross profit of
8.7 billion yuan ($1.3 billion) in 2008 on sales of 300 billion
yuan, according to the latest information on its website.

“A less risky and more practical way may be minority stock
holding rather than taking the whole of the company,” said
Allen Jiao, a Shanghai-based analyst at UOB Kay Hian Investment
Co. “Chinese companies still lack experiences in managing a
global company.”

Chinese companies have announced resource and energy
acquisitions worth a total of $30 billion this year compared
with $58 billion in 2009, when state-owned Aluminum Corp. of
China was stung by its failure to invest $19.5 billion in Rio
Tinto.

A Chinese offer also would have had to overcome the
objections of Saskatchewan Energy and Resources Minister Bill
Boyd, who said Sept. 2 that offers by state-owned enterprises
wouldn’t be in the interest of the Canadian province.

Potash Imports

The lack of a Chinese counteroffer would strengthen
Melbourne-based BHP’s bidding position and success will give the
world’s biggest mining company more control over the supply of
commodities into China, the largest consumer.

China is the world’s largest user of potassium fertilizer
and relies on imports for more than half of its needs. It’s the
second-biggest importer of potash after India.

Chinese companies have failed to successfully acquire some
agricultural assets in the past three years. China National
Chemical Corp., backed by buyout fund Blackstone Group LP, ended
talks to buy Nufarm Ltd. in 2007 after a study of its accounts.
Sinochem Corp.’s attempt to buy Nufarm last year was stymied
when Japan’s Sumitomo Chemical Co. bought a 20 percent stake in
Australia’s largest farm chemicals supplier.

China’s Bright Food Group Co. lost out on the bid to buy
CSR Ltd.’s sugar unit in July after Singapore’s Wilmar
International Ltd. offered A$1.75 billion ($1.73 billion) for
Australia’s biggest sugar refiner.